Financial Times

Greed, ego causes for corporate scandals
Greed and ego are the two main reasons for corporate scandals, Peter Radford, Head of Audit and Business Risk at British and American Tobacco Group said.
"Stock options, bonuses, stock market expectations, analysts' greed, institutional greed and the ego of the directors is what ultimately leads to scandals," he told a breakfast meeting held by the Institute of Chartered Accountants of Sri Lanka (ICASL) on the recent developments on corporate governance in the UK.

The existence of greed and ego heightens the need for good corporate governance. Speaking on ways of tackling scandals and risk management Radford said, "The best way to handle risk is to accept the risk, then find ways to overcome it.”

"Risk management could be used in a number of different ways to help the organisation move forward," he added. "Audit committees with independent minded people, who are knowledgeable about the business, who challenge the management and bring external perspective will help organisations to have better governance."
Stressing on the importance of good governance, Radford said, "Good governance does not guarantee success, but poor governance will guarantee failure."

Following the many corporate disasters the importance of good governance has increased along with the need to share experiences. David Illingworth, President of the Institute of Chartered Accountants of England and Wales, said auditors should be better watchdogs. "Auditors should be able to spot fraud, and honest dialogue must be made with the auditors. Therefore, auditors will not be bloodhounds but better watch dogs," Illingworth said.

"We need to understand the basis under which audits are made. The quality and integrity of auditors are important," Illingworth told corporate leaders. He went on to say that quality cannot be compromised. "Dynamic and flexible laws, codes of governance tailored to domestic operations will ensure good governance, quality and high standards," he said adding that accountants work in all sectors in the economy and therefore should be well equipped to give high quality independent decisions.
Illingworth also stressed on the importance of having non-executive directors on the board.

"At least half the board should comprise of non-executive directors," he said, adding that these non-executive directors should have financial experience. This would ensure that good governance is embedded in the organization.

"Ultimately the quality of the people is what counts, no process however rigorous, can compensate for a wrong decision. The liability of the Chief Executive Officers and the management should increase, and hence there should be more emphasis on management integrity." The UK government published a code recently which enables auditors to demand information from the directors and employees. (RS)

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